The US Securities and Exchange Commission (SEC) has launched a full-scale investigation into Coinbase for allegedly listing securities on its platform, days after a former employee was accused of insider trading.
bloomberg reported that Coinbase faced scrutiny by the SEC for allowing Americans to trade unregistered securities. According to insiders, the SEC has increased its monitoring of Coinbase transactions as the exchange increases the number of tokens available for trading.
Currently, there are over 150 assets available for trading on Coinbase and if the SEC’s claim holds water, the exchange may have to register with the commission pursuant to Section 6 of the Securities Exchange Act of 1934.
Coinbase legal officer Paul Grewal responded to the report, saying that there were no skeletons in the exchange’s cupboards.
Grewal said, “I am pleased to say this again and again: We believe that our rigorous due diligence process – a process that has already been reviewed by the SEC – keeps securities off our platform, and we But look forward to engaging with the SEC,” Grewal said. Told.
Coinbase and the SEC Going Together
The SEC and Coinbase have previously clashed over several issues over whether tokens are securities. The latest controversy comes after the commission accused a former Coinbase employee of insider trading in order to get his brother to buy tokens before they were listed on the exchange.
The SEC noted that the nine assets traded by the plaintiffs were securities, indirectly claiming that Coinbase had listed the securities without their consent. Coinbase immediately defended itself with a strongly worded blog post titled “Coinbase does not list securities. End of story.”
Last year, Coinbase formed a close relationship with the Commission over its lending product and was forced to leave it when the SEC threatened legal action. Coinbase has also confirmed that it has “received an investigative summons” from the commission and has always followed instructions.
SEC’s reliance on the Howe test
In determining whether an asset is a security, the SEC typically relies on a 1946 case between the Commission and the W.J. Howe Company, known as the Howe trial, for transactions to fall within the purview of securities law. There must be some elements present.
According to the courts, the securities law would apply if the transaction involved “an investment of money in a common enterprise with a reasonable expectation of profits to be derived from the efforts of others.”
Flowing from the above, Gary Gensler, SEC Chairman, has said that many cryptocurrencies are securities and that this stance has based its case against Ripple Labs on the sale of XRP.